NATIONAL OPEN UNIVERSITY OF NIGERIA

PLOT 91 CADASTRAL ZONE NNAMDI AZIKIWE EXPRESS WAY, JABI-ABUJA

FACULTY OF MANAGEMENT SCIENCES
DEPARTMENT OF FINANCIAL STUDIES
NOVEMBER 2018 EXAMINATION
COURSE CODE: ACC419 CREDIT UNIT: 3
COURSE TITLE: ADVANCED FINANCIAL ACCOUNTING
INSTRUCTIONS: 1. Attempt Question 1 and any other three (3) Questions.
2. Question 1 is compulsory and carries 25 marks while the other 3
Questions carry 15 marks each.
3. Present all your points in a coherent and orderly manner.
TIME ALLOWED: 21/2 HOURS

1. The summarized statement of financial position of three companies: Abia limited, Emonu-
orogun limited and Umuahia limited as at 31st December, 2017 are as shown below:
Abia ltd. Emonu-orogun Umuahia
₦’000 ₦’000 ₦’000
Non-current assets:
Property, plant and equipment 442 1,800 1,500
Investment in Emoru-orogun 2,660 - -
Investment in Umuahia limited 214 - -
Loan to Umuahia limited 50 - -
Available for sale investment 100 -
3,466 1,800 1,500
Current assets:
Inventories 919 450 441
Receivables 880 720 600
Cash 867 200 136
2,666 1,370 1,177
Total assets 6,132 3,170 2,677
Equity and liabilities:
Equity shares of ₦1 each 4,800 2,300 2,200
Share premium 452 310 37
Retained earnings 360 180 100
Total equity 5,612 2,790 2,387
Non-current liabilities:
6% loan 100 - 60
10% debenture 60 40 20
Deferred tax 120 110 100
280 150 180
Current liabilities:
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Payables 125 120 60
Income tax 115 110 50
240 230 110
Total liabilities 520 380 290
Total equity and liabilities 6,132 3,170 2,677

The following information are also provided.

1. Abia Limited acquired 80% of the issued share capital of Emonu-orogun limited for
₦2,660,000 on 1st January, 2017 when the retained earnings of Emonu-orogun limited
stood at ₦60,000.
2. Abia limited acquired 660,000 ₦1 ordinary shares in Umuahia limited for ₦214,000,
when the retained earnings of Umuahia limited stood at ₦20,000 and that of Abia limited
was ₦80,000.
3. Abia limited and Umuahia limited proposed 1% and 1.1% dividend respectively. These
dividends are yet to be accounted for.
4. It is the group policy to measure non-controlling interests at acquisition date based on
their share of identifiable net asset. That is, the proportionate of net assets. At the
reporting date, goodwill in Emonu-orogun limited has been impaired by ₦200,000 while
the investment in Umuahia limited was impaired by ₦50,000.
5. The available-for-sale investments are included in the statement of financial position at
their fair value on 31st December, 2016 in line with IFRS 9, but they have a fair value of
₦110,000 as at 31st December, 2017.
6. During the year ended 31st December, 2017, there was a downstream transaction where
Abia limited sold goods to Umuahia limited for ₦80,000 at a margin of 10%. These
goods are still in store as at end of the financial year, 2017.

Required: Prepare the consolidated statement of financial position of Abia Limited group as at
31st December, 2017. 25 Marks

2. Taiwo Plc Company prepares account to 31st march every year. At 31st march 2017, the trial
balance extracted from its ledgers by the accounting officer was as follows:
Dr Cr
₦’000 ₦’000
Tangible non-current assets 87,500
Accumulated depreciation (1/4/16) 13,500
Intangible non-current assets 38,100
Accumulated depreciation (1/4/16) 9,200
Sales 240,600
Inventories at (1/4/16) 28,750
Purchases 94,780
Distribution cost 15,100
Wages and salaries 18,300
Rents and rates 14,700
Deferred tax 20,800
10% loan notes 10,500
Trade receivable 46,100
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Trade payables 32,450
Ordinary shares of ₦1 each 50,000
Share premium 27,500
Retained earnings 91,850
Audit fees 2,300
Directors remuneration 14,950
Return inwards 8,300
Return outwards 3,780
Dividends paid 16,700
Interest paid 600
Corporate tax 2,500
Rental income 30,800
Commission received 18,300
Postage and stationery 25,000
Other administrative expenses 46,635
Sales person commission 1,360
Cash and bank 96,325
Insurance premium 8,780
551,780 551,780
Relevant notes:
i. Inventory at 31st march 2017, valued at cost was ₦10.6million. its fair value less to costs
to sell is estimated at ₦9.4million as a result of physical deterioration.
ii. The directors of Taiwo Plc have recommended a final dividend of ₦3 per share
iii. The following were outstanding at 31/3/2017
₦’000
Salaries & wages 1,560
Sales person commission 880
Postages 2,100
iv. The following were prepayments at 31/3/2017
₦’000
Insurance premium 2,450
Rents and rates 1,950
v. The company depreciates its non-current assets on straight - line basis at the following
rates:
Tangible non-current assets 10% on cost
Intangible non-current assets 15% on cost
vi. The directors estimated that income tax of ₦28million will be paid for the year ended
31/3/2017. The corporate tax balance in the trial balance represent over provision in
respect of the preceding accounting period.

Required: Prepare required statement of profit or loss for the period ended 31st March 2017 .
15 Marks

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3. The following information relate to the affairs of Kenny Plc for the period ended 31
December.

Statements of financial position as at 31 December:

2017 2016
₦ ₦
Non- current assets 321,000 340,000
Long- term investment 50,000 30,000
371,000 370,000
Current assets:
Inventories 200,000 90,000
Trade receivables 82,000 60,000
Cash and bank balances 62,000 50,000
344,000 200,000
Total assets 715,000 570,000
Equity and liabilities
EQUITY:
Issued share capital 200,000 160,000
Share premium 56,000 40,000
Retained earnings 273,000 243,000
529,000 443,000
Non- current liability
Long- term loan 40,000 22,000
Current liabilities
Trade payables 62,000 30,000
Bank overdraft 28,000 15,000
Income tax payable 24,000 20,000
Other payables 32,000 40,000
146,000 105,000
Total liabilities 186,000 127,000
Total equity and liabilities 715,000 570,000

Statement of Profit or Loss for the year ended 31 December 2017

₦
Revenue 488,000
Cost of sales 285,000
Gross profit 203,000
Distribution costs 44,000
Administrative expenses 81,000
Interest and dividends received 3,000
Finance cost 1,000
Profit before tax 80,000
Income tax expense 24,000
Profit for the period 56,000

Additional Information:
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1. Depreciation charge of the year was ₦8million on land and building and ₦22 million on plant
and machinery.
2. During the year a plant with a carrying amount of ₦35million was sold for ₦42million.
3. During the year, an investment that had cost ₦8million some years earlier was sold for
₦13million.
4. Dividend paid in the year amounted ₦26million.

Required: Prepare statement of cash flows of Kenny Plc for the period ended 31 December
2017, using the DIRECT method. 15 Marks

4. The following are the financial statements for NOUN Nigeria limited for the year 2017.

Statement of financial position as at 31 December, 2016

Assets ₦
Non- current assets (net) 1,050,000
Goodwill 140,000
Current assets:
Inventories 490,000
Trade receivables 350,000
Cash and cash equivalents 70,000
2,100,000
Equity and liabilities
Equity:
Share capital 140,000
Retained earnings 280,000
Non- current liabilities
Preference share capital 280,000
Long- term borrowings 840,000
Deferred tax 100,000
Current liabilities
Trade and other payables 420,000
Short- term provisions 40,000
2,100,000
Statement of profit or loss for the year ended 31 December, 2017
Revenue:
- Cash 280,000
- Credit 1,120,000
1,400,000
Cost of sales 840,000
Gross profit 560,000
Distribution cost 140,000
Administrative expenses 98,000
Finance cost 42,000 1,120,000
280,000
Income tax expense 140,000
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Profit for the period from continuing operations 140,000
Net of preference dividend 17,000
Net profit for ordinary shareholders 123,000
Reserve at 1 January, 2016 182,000
305,000
Dividend paid to equity shareholders 25,000
Reserves at 31 December, 2016 280,000

The ratios for the years 2014 and 2015 for NOUN Nig. Limited and the industry ratios are given
below.
2014 2015 Industry
Current ratio 2.54 2.10 2.30
Acid- test ratio 1.10 0.96 1.20
Gross profit margin 38% 41% 40%
Return on equity 24% 29% 19%
Inventory turnover 3.80 3.05 3.85

Required:
a. Calculate current ratio, acid-test ratio, Gross profit margin, return on equity, inventory
turnover for 2016 and evaluate the company’s financial position.
b. Using relevant ratios, as you have computed, indicate what decision would be taken in a
situation where NOUN Nigeria limited wants to buy material of ₦70,000 on a three
months credit from ICAN limited. 15 Marks

5. On 1st January 2012, Fred plc began to lease some land. The lease was for 20 years and was
correctly assessed by Fred plc to be an operating lease. The annual lease rentals were
₦500,000, payable on 31 December in arrears. However, during its negotiations with the
lessor, it was agreed that Fred plc will enjoy a three-year rent free period at the start of the
lease (i.e no lease or rent will be paid in the first four years). Therefore the first payment is
not due until December 2015 and Fred plc will make only 17, rather than 20 payments.

Required: Show the profit or loss extract for the six years to 31 December, 2017. 15 Marks

6. Joint arrangement is governed by IFRS II. The international Accounting Standards Board
(IASB) in 2013 presented some terminologies that feature prominently in joint arrangements.
Explain some of the terminologies as stated below:
(i) Joint venture (ii) Joint operation (iii) Separate vehicle (iv) Joint control (v) Joint arrangement
15 Marks